Question

Calculation of Value-Added and Non-Value-Added Costs, Activity Volume and Unused Capacity Variances Maquina Company produces custom-made machine parts. Maquina recently has implemented an activity-based management (ABM) system with the objective of reducing costs. Maquina has begun analyzing each activity to determine ways to increase its efficiency. Setting up equipment was among the first group of activities to be carefully studied. The study revealed that setup hours was a good driver for the activity. During the last year, the company incurred fixed setup costs of $388,080 (salaries of 14 employees). The fixed costs provide a capacity of 21,560 hours (1,540 per employee at practical capacity). The setup activity was viewed as necessary, and the value-added standard was set at 1,540 hours. Actual setup hours used in the most recent period were 20,370 Required: 1. Calculate the volume and unused capacity variances for the setup activity. Enter all amounts as positive values Volume Variance Unused Capacity Variance 2. Prepare a report that presents value-added, non-value-added, and actual costs for setup Maquina Company Value- and Non-Value-Added Cost Report Value-Added Non-Value-Added Actual Setting up

Answer 1

Answer:

Part-1

Fixed Activity Rate (SP) =Fixed Setup Cost/ No. of Hour

$388,080/21,560=$18/Set upHour

Volume Variance= (SPXSQ-SPX AQ)

(18X1540)-(18X 21560)=$360360 UF

Unused Capacity Variance= (SPXAQ)-(SPX AU)

(18X21560)- (18X 20370)=21420F

Part-2: Value & Non-Value Added Cost Report
	Value Added	Non Value Added	Actual
Setting Up	(SP X SQ)	Volume Variance	SP X AQ
	(18 X 1540)		(18X 21560)
	27,720	3,60,360	3,88,080